Section 425 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 425 charges interest where advance tax is paid late or short against the instalment dates, measured against the "tax due on returned income". This article explains it as per the Income-tax Act, 2025 as amended by the Finance Act, 2026; later amendments, rules and notifications should be checked separately.
An assessee liable to pay advance tax under section 404 must reach cumulative payments of 15%, 45%, 75% and hundred per cent of the tax due on returned income by 15 June, 15 September, 15 December and 15 March. A shortfall attracts interest of 3% for the first three dates and 1% for 15 March (the Table in sub-section (1)). No interest arises if payments reach 12% by 15 June and 36% by 15 September (sub-section (2)). Clause (f) of sub-section (5) was substituted by the Finance Act, 2026, w.e.f. 1-4-2026.
Section 425(1): the Table
The section applies to an assessee liable to pay advance tax under section 404, other than the assessee in sub-section (3), who has failed to pay the tax, or whose advance tax paid on its current income on or before the date in column B is less than the advance tax due on returned income in column C. Interest is payable on the amount of shortfall in column D, at the rate in column E.
| Serial number | Due date of instalment | Advance tax due on returned income | Shortfall | Interest on shortfall |
|---|---|---|---|---|
| 1 | 15th day of June | 15% of the tax due on returned income | Shortfall till 15th day of June | 3% |
| 2 | 15th day of September | 45% of the tax due on returned income | Shortfall till 15th day of September | 3% |
| 3 | 15th day of December | 75% of the tax due on returned income | Shortfall till 15th day of December | 3% |
| 4 | 15th day of March | hundred per cent of the tax due on returned income | Shortfall till 15th day of March | 1% |
Column D defines the shortfall as the advance tax due as per column C, reduced by advance tax already paid on or before the date in column B. The amounts are cumulative.
The Table prints the rates as "3%" and "1%" and, unlike section 424, does not state a period such as "per month" next to them. They are applied to the shortfall as printed.
The dates and instalments are set out in section 408; the liability is in sections 403 to 406. If you want a quick cross-check of your quarterly payments, use our advance tax calculation service.
Section 425(2): where no interest arises
The assessee is not liable to interest under sub-section (1) if the advance tax paid on the current income:
- (a) on or before the 15th day of June is 12% or more of the tax due on the returned income;
- (b) on or before the 15th day of September is 36% or more of the tax due on the returned income.
The two clauses are printed one after the other with no connecting word, so meet both limits when planning payments.
Section 425(3): the 58(2) assessee and the single date
An assessee who declares profits and gains as per section 58(2) (serial number 1 or 3), or who is liable to pay advance tax under section 404 and fails to pay, or whose advance tax paid on its current income on or before 15 March is less than the tax due on returned income, is liable to pay simple interest at the rate of 1% on the amount of shortfall from the tax due on the returned income. Section 58 is explained in our article on presumptive taxation.
Section 425(4): income that could not be foreseen
No interest is payable under sub-section (1) or (3) on a shortfall where:
- (a) the shortfall arises from under-estimation of, or failure to estimate, any of: (i) capital gains; (ii) income as per section 2(49)(n); (iii) income under the head profits and gains of business or profession accruing or arising for the first time; (iv) dividend income; and
- (b) the assessee has paid in full the tax payable on that income, had it been part of total income, in any of the remaining instalments of advance tax, if any, or by the 31st day of March of the tax year.
Section 425(5) and (6): definitions
"Tax due on the returned income" means the tax chargeable on the total income declared in the return furnished for the tax year in which the advance tax is paid or payable, as reduced by:
| Clause | Reduction |
|---|---|
| (a) | Tax deducted or collected at source as per Chapter XIX-B on income subject to it and taken into account in computing the total income |
| (b) | Relief of tax allowed under section 157 |
| (c) | Relief under section 159(1) on account of tax paid in a country outside India |
| (d) | Relief under section 159(2) on account of tax paid in a specified territory outside India |
| (e) | Deduction under section 160 on account of tax paid in a country outside India |
| (f) | Any tax credit allowed to be set off as per section 206(2)(e) to (h) and 206(3) and (4) |
Clause (f) was substituted by the Finance Act, 2026, w.e.f. 1-4-2026; the replaced wording, as the footnote prints it, cited section 206(1)(m) to (p) and 206(2)(e) to (h). Sub-section (6) adds that "dividend" has the meaning in section 2(40) but does not include sub-clause (e) of it.
How section 425 differs from section 424
Section 424 looks at the tax assessed; section 425 looks at the tax due on the returned income, instalment by instalment. For the assessed-tax side, read section 424.
Worked example
Karan Components, an invented firm, has tax due on returned income of Rs. 1,00,000 after the reductions in sub-section (5). All figures are assumed and each date is read cumulatively.
| Date | Required (sub-section (1)) | Paid by the date (assumed) | Shortfall | Interest |
|---|---|---|---|---|
| 15 June | 15% = Rs. 15,000 | Rs. 10,000 | Rs. 5,000 | 3% = Rs. 150 |
| 15 September | 45% = Rs. 45,000 | Rs. 45,000 | nil | nil |
| 15 December | 75% = Rs. 75,000 | Rs. 75,000 | nil | nil |
| 15 March | Rs. 1,00,000 | Rs. 95,000 | Rs. 5,000 | 1% = Rs. 50 |
Karan Components paid Rs. 10,000 by 15 June, which is less than 12% (Rs. 12,000), so the protection in sub-section (2)(a) is not available and interest of Rs. 150 applies to the June shortfall. If the firm had paid Rs. 12,000 by 15 June and Rs. 36,000 by 15 September, no interest would arise under sub-section (1) for those two dates.
Common mistakes
- Treating each instalment as a fresh amount rather than a cumulative one.
- Ignoring the 12% and 36% limits in sub-section (2).
- Overlooking sub-section (4), which excuses shortfalls from capital gains, dividend and similar income where the tax is paid in full in the remaining instalments or by 31 March.
- Using the figure for the assessed tax instead of the tax due on returned income.
Need help planning instalments?
Working back from expected income to the four dates is easier before the year closes. Our tax planning advisory team can help you set the schedule.
Key takeaways
- Four cumulative targets: 15%, 45%, 75% and hundred per cent of the tax due on returned income.
- Interest of 3% on shortfalls up to 15 June, 15 September and 15 December, and 1% on the 15 March shortfall.
- No interest if payments reach 12% by 15 June and 36% by 15 September.
- Unforeseen capital gains, dividend and similar income are excused if the tax is paid in time.
Read next
- Section 424: interest for defaults in payment of advance tax
- Section 408: advance tax instalments
- Section 423: interest for default in furnishing return of income
- Sections 426, 427, 429 and 430: excess refund and fees
- Section 428: fee for default in furnishing return
Disclaimer: Based on the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026, as consulted on 2 October 2026. It explains the words of the Act only; the Income-tax Rules, 2026, notifications, circulars, later amendments and the way the tax authorities and courts apply these provisions should be checked. This article is general information, not legal advice; check the official text before acting.